Question

Glaser Company carries the following investments on its books at December 31, 2020 and December 31, 2021. Available for-Sale securities are considered to be non-current. All securities were purchased and properly recorded during February 2020. You need to combine all trading and AFS securities into trading portfolio and AFS portfolio, respectively, while making the fair value adjustment entries.

			Market Value	Market Value
		Cost	12/31/2020	12/31/2021
Stock in A	Trading(TS)	$300	$ 250	$230
Stock in B	Trading (TS)	250	190	----
Stock in C	Available-for-sale (AFS)	400	430	445
Stock in D	Available-for-sale (AFS)	375	330	335

Required:

• Prepare the necessary fair value adjusting journal entries for Glaser on December 31, 2020.
• Assume Glaser sold its investment in “B” for $125 on December 15, 2021; prepare journal entries for sales of investment on December 15 and fair value adjusting journal entries on December 31, 2021.

• Ignoring income taxes and assuming both the retained earnings and accumulated other comprehensive income have a balance of 0 on December 31, 2019, complete the following schedule:

	December 31
	2020	2021
Income Statement:
Realized gains and losses on investments
Unrealized gains and losses on investments
Balance Sheet:
Current assets:
Investments at fair value-trading
Non-Current assets:
Investments at fair value-AFS
Stockholders' Equity
Retained earnings
Accumulated other comprehensive income

Answer 1

1. (a) Fair Value Adjusting Entries for Glaser on 31st Dec,2020

Particulars	Debits ($)	Credits ($)
Unrealised Loss on Trading Securities (Note 1)	110
To Trading Securities		110
(Being necessary fair value adjustments made to Trading Securities)
Unrealised Loss on AFS Securities (Note 2)	15
To AFS Securities		15
(Being necessary fair value adjustments made to AFS Securities)
Income Statement	110
To Unrealised Loss on Trading Securities		110
(Being Unrealised Loss on Trading Securities transferred to Income Statement)
Accumulated Other Compehensive Income	15
To Unrealised Loss on AFS Securities		15
(Being Unrealised Loss on AFSSecurities transferred to Accumulated Other Compehensive Income )

Note 1: Unrealised Loss on Trading Securities = (Market Value of Stock A at 12/31/2020 - Cost of Stock A) + (Market Value of Stock B at 12/31/2020 - Cost of Stock B) = (250-300) + (190-250) => -50-60 => -$110

Note 2: Unrealised Loss on AFS Securities = (Market Value of Stock C at 12/31/2020 - Cost of Stock C) + (Market Value of Stock D at 12/31/2020 - Cost of Stock D) = (430-400) + (330-375) => => -$15

1. (a) Sale of Investment & Fair Value Adjusting Entries for Glaser for the Year 2021:

Date	Particulars	Debits ($)	Credits ($)
Dec 15,2021	Cash	125
	Realised Gain/Loss on Trading Secuties	65
	To Trading Securities		190
	(Being Trading Security sold)
Dec 31	Income Statement	65
	To Realised Gain/Loss on Trading Secuties		65
	(Being Realised Gain/Loss on Trading Secuties transferred to Income Statement)
Dec 31	Unrealised Gain/Loss on Trading Securities	20
	To Trading Securities		20
	(Being necessary fair value adjustments made to Trading Securities)
Dec 31	AFS Securities	20
	To Unrealised Gain/Loss on AFS Securities		20
	(Being necessary fair value adjustments made to AFS Securities)
Dec 31	Income Statement	20
	To Unrealised Gain/Loss on Trading Securities		20
	(Being Unrealised Loss on Trading Securities transferred to Income Statement)
Dec 31	Unrealised Gain/Loss on AFS Securities	20
	To Accumulated Other Compehensive Income		20
	(Being Unrealised Gain on AFS Securities transferred to Accumulated Other Compehensive Income )

2. Schedule (Note: Gains are amounts without brackets and Losses are amounts with brackets)

Particulars	Dec 31, 2020 ($)	Dec 31, 2021 ($)
Income Statement:
Realised Gains and (Losses) on Investments	0	(65)
Unrealized gains and losses on investments	(110)	(20)
Balance Sheet:
Current assets:
Investments at fair value-trading	440	230
Non-Current assets:
Investments at fair value-AFS	760	770
Stockholders' Equity
Retained earnings (Note 3)	(110)	(195)
Accumulated other comprehensive income (Note 4)	(15)	5

Note 3:

Retained earnings as of 12/31/2020: Retained earnings as of 12/31/2019 + Realised Gains and (Losses) on Investments (Both Trading and AFS) + Unrealized gains and losses on Trading investments => 0 + 0 + (110) = -$110

Retained earnings as of 12/31/2021: Retained earnings as of 12/31/2020 + Realised Gains and (Losses) on Investments (Both Trading and AFS) + Unrealized gains and losses on Trading investments => (110) + (65) + (20) = -$195

Note 4:

Accumulated other comprehensive income as of 12/31/2020:  Accumulated other comprehensive income as of 12/31/2019 + Unrealized gains and losses on AFS investments => 0 + (15) = -$15

Accumulated other comprehensive income as of 12/31/2021: Accumulated other comprehensive income as of 12/31/2020 +  Unrealized gains and losses on AFS investments => (15) + 20 = $5